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On the Horizon -- FASB addresses scope of modification accounting

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Contents

FASB
  ASU addresses scope of modification accounting in ASC 718
  Invitation to comment issued on U.S. GAAP Financial Reporting Taxonomy
   Tentative decisions from May 10 meeting posted
GASB issues implementation guidance impacting OPEB plans
Comment letter issued



FASB

ASU addresses scope of modification accounting in ASC 718

The Board issued ASU 2017-09, Scope of Modification Accounting, to provide clarity and to reduce diversity in practice related to a modification when applying the guidance in ASC 718, Compensation – Stock Compensation. The guidance in ASC 718 defines a “modification” as a change in the terms or conditions of a share-based payment award. The amendments provide guidance about when changes in terms or conditions of a share-based payment award require an entity to apply the existing modification guidance in ASC 718.

Under the ASU, an entity should apply the existing modification accounting guidance unless all of the following items are the same immediately before and after the modification:

  • Fair value (or calculated value or intrinsic value, as applicable)
  • Vesting requirements
  • Classification of the award as an equity or a liability instrument

An entity is not required to estimate the fair value of an award immediately before and after the modification if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award.

The current disclosure requirements in ASC 718 continue to apply, regardless of whether an entity is required to apply modification accounting under the amendments.

The amendments in the ASU are effective for all entities for fiscal years beginning after December 15, 2017 and for interim periods within those annual periods. For public business entities, early adoption is permitted for reporting periods, including interim periods, for which financial statements have not been issued. All other entities may early adopt the amended guidance for reporting periods for which financial statements have not been made available for issuance.

The amendments should be applied prospectively to modifications occurring on or after the adoption date.

Invitation to comment issued on U.S. GAAP Financial Reporting Taxonomy

The FASB recently issued an Invitation to Comment, U.S. GAAP Financial Reporting Taxonomy – Efficiency and Effectiveness Review, to aid in its assessment of the efficiency and effectiveness of the U.S. GAAP Financial Reporting Taxonomy. The assessment is being conducted in response to an SEC request.

The Invitation to Comment describes potential improvements to the usability of the taxonomy and to the processes that support taxonomy-related activities, such as taxonomy processes.

Comments on the Invitation to Comment are due by June 15. The FASB plans to discuss the feedback it receives at a public roundtable meeting on July 18.

Tentative decisions from May 10 meeting posted

All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on May 10 to discuss the following topics:

  • Targeted improvements to the liabilities and equity project
  • Agenda prioritization
  • Intangibles
  • Revenue recognition implementation
  • Leases implementation

The Board’s actions related to these topics are summarized below.

Liabilities and equity – targeted improvements

The Board completed redeliberations of the portion of a proposed ASU related to the accounting for financial instruments with down-round features, and made the following tentative decisions.
 
The Board tentatively decided to require entities that report Earnings Per Share (EPS) either voluntarily or in accordance with ASC 260, Earnings Per Share, to make a numerator adjustment to income available to common stockholders for basic EPS when the down-round feature of an equity-classified financial instrument is triggered.

The numerator adjustment would be measured immediately after the down-round feature is triggered, and would equal the difference between (1) the fair value of the financial instrument (without the down-round feature), with a strike price corresponding to the amount before the strike-price reduction, and (2) the fair value of the financial instrument (also without the down-round feature), with a strike price corresponding to the reduced strike price. An entity would record this EPS adjustment in the balance sheet as an equity adjustment between retained earnings and additional paid-in capital.

An entity that is required to present the EPS adjustment would also be required to disclose the value of the effect of the down-round feature. The Board also tentatively decided to amend the disclosure requirements in ASC 505, Equity, to clarify that these requirements apply to changes in conversion or exercise prices.

An entity would apply these amendments to outstanding financial instruments as of the effective date by using a modified retrospective approach, with a cumulative-effect adjustment to beginning retained earnings in the fiscal year or interim period of adoption. An entity would also be permitted to apply the amendments using a full retrospective approach by restating all prior periods presented.

Public business entities would apply the amendments in fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. All other entities would apply the amendments in fiscal years beginning after December 15, 2019 and in interim periods within fiscal years beginning after December 15, 2020.

All entities would be permitted to adopt the amendments upon issuance of an ASU in any financial statements for annual or interim periods that have not been issued or made available for issuance.

Other topics

The Board decided to add a project to its agenda on accounting for certain costs incurred in a cloud computing arrangement that is considered a service contract. This project will be addressed by the Emerging Issues Task Force. The Board also decided not to add a project to its agenda related to certain expenses and fees incurred by employee benefit plans.

The Board discussed research performed on approaches to improving the accounting for intangibles and directed the staff to perform additional research on this topic.

It also discussed the status of implementation activities related to the new revenue standard and subsequent updates, and asked the staff to continue monitoring implementation and disclosure as entities adopt the new guidance.

Finally, the staff provided an update on inquiries and feedback since the issuance of ASU 2016-02, Leases, and highlighted certain inquiries for discussion by the Board. The Board directed the staff to perform additional outreach related to whether easements would be considered an identified asset under ASC 842, Leases, and tentatively decided that no further standard-setting action was needed on the other highlighted areas, including whether a pipeline lateral would be considered an identified asset under ASC 842 and certain transition guidance.



 GASB issues implementation guidance impacting OPEB plans

The Governmental Accounting Standards Board (GASB) issued Implementation Guide 2017-02, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which contains questions and answers intended to clarify, explain, or elaborate on the requirements of GASB Statement 74, Financial Reporting for Postemployment Benefits Other Than Pension Plans, as amended.

The requirements of the guide are generally effective for reporting periods beginning after December 15, 2016. Earlier application is encouraged if Statement 74 has already been adopted.

Certain questions in the guide are effective for reporting periods beginning after June 15, 2017. Earlier application is encouraged if the related other postemployment benefits plan (OPEB) provision of Statement 85, Omnibus 2017, has been implemented.

State and local governments should adopt any changes to conform to the provisions of the guide retroactively. If retroactive restatement is not practicable, the cumulative effect, if any, of applying the provisions of the guide should be reported as a restatement of beginning fiduciary net position for the earliest period restated.




Comment letter issued

On May 5, the firm issued a comment letter in response to the FASB’s proposed ASU, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent).



© 2017 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.